Final answer:
Income tax expense is allocated to discontinued operations and other comprehensive income but not to gross profit, which is a pre-tax profitability measure. c)Gross profit shows a company's earnings before taxes are deducted, while income tax impacts the net income on the income statement.
Step-by-step explanation:
Companies allocate income tax expense (or benefit) to several components of their financial statements, including discontinued operations and other comprehensive income. However, they do not typically allocate income tax expense to gross profit. The allocation of income tax is done to match the tax expense with the related income, ensuring that the financial statements reflect the true tax implications of the business's activities. For instance, corporate income tax is a tax imposed on corporate profits, and it represents a significant part of federal tax revenue despite its decline as a share of GDP over time. Discontinued operations and other comprehensive income are both affected by corporate income tax, which must be considered when presenting financial information.
Gross profit, however, is a measure of a company's profitability before operating expenses, interest, and taxes are deducted, and therefore, income tax is not factored into this line item. Instead, income tax expense affects the net income or net loss declared on the income statement after all expenses, including operating expenses and interest, have been accounted for. This ensures that any analysis of profitability factors in the costs of taxes. The estate and gift tax are different forms of taxation, not directly linked to income tax allocation on the financial statements of a company.